Former investment officer alleges pay-to-play in Richardson administration

Frank Foy, left, is alleging a pay-to-play scheme involving state investments. His attorney, Victor Marshall, is seated to the right.

Frank Foy sent a clarion call Wednesday. Wanted: an army of whistle-blowers to uncover evidence of pay-to-play anywhere in New Mexico.

“I would strongly urge anyone else who might have suspicion of pay-to-play anywhere within the state, whether it’s in state government, city government, municipal government, county government, to come forward,” Foy said.

Foy, a former chief investment officer at a state board, appeared to be leading the charge Wednesday when he came forward to allege that he had been pressured to award contracts and make investments that would reward political campaign contributors of Governor Bill Richardson.

Foy, who until last summer worked for the Education Retirement Board, is alleging in a 26-page complaint unsealed Wednesday that pressure was exerted on officers at his former agency and at the State Investment Council, to make investments that ultimately lost the state nearly $90 million.

Education Retirement Board chairman and Albuquerque accountant Bruce Malott, a Richardson appointee, pressured him to invest, he said.

“I just knew, for the first time in my career at ERB, I was instructed to talk to a bond salesman,” Foy said Wednesday, referring to a salesman attempting to interest him in securities touted by a Chicago-based firm, Vanderbilt Capital. Vanderbilt gave more than $15,000 to Gov. Richardson’s presidential campaign.

When Foy tried to resist, he said he was demoted, then forced to retire this past summer.

The suit also alleges that State Investment Officer Gary Bland also pushed Vanderbilt at his agency.

Malott, and spokesmen for the governor and Bland, strongly denounced Foy’s complaint Wednesday and questioned his motives in filing it.

“I simply lost faith in Mr. Foy’s appropriateness for the position,” Malott said in a telephone interview. “It is most unfortunate that he now seeks to exploit recent headlines for his personal vendetta against me.”

Charles Wollman, a spokesman for Bland, said Foy’s assertions were without merit and that “his motivations are questionable at best.”

Meanwhile, a spokesman for the governor called Foy’s claims “absurd” and labeled Foy “a disgruntled former employee who was accused of serious misconduct during his time as a state employee.”

“The Governor is confident that the state agencies named in this lawsuit acted properly and in the best interest of New Mexicans,” said Richardson’s spokesman Gilbert Gallegos.

Foy acknowledged that he was accused and found guilty of three counts of sexual harassment, “even though I denied all three of them vigorously.”

“I felt it was a sham by senior management to force my hand to get me to quit or retire,” Foy said.

As to being disgruntled, Foy said, “I guess I can be considered disgruntled given the fact that I was railroaded out of my job.”

Accusations Snowball

However the case may end up, Foy’s allegations come at a bad time for Richardson, whose administration already has come under a shadow because of a separate federal probe investigating an alleged pay-to-play scheme at the New Mexico Finance Authority.

In that case, federal prosecutors are investigating whether a California firm, CDR Financial Products, got state work in return for large contributions it gave to two political action committees started by Richardson, ¡Si Se Puede! and Moving America Forward.

The investigation cost Richardson the commerce secretary job in President-elect Barack Obama’s cabinet.

Foy said he had not been contacted in that case by federal prosecutors, but he has been contacted by the federal Securities and Exchange Commission.

Foy’s complaint lists multiple defendants besides Vanderbilt, Malott and Bland. Several financial services firms, including JP Morgan Chase and UBS are named. The suit also has 50 unnamed defendants who are known as John Doe #1 through John Doe #50.

JP Morgan and UBS both have figured tangentially in the ongoing federal probe involving CDR. And a UBS AG consultant served as a fund-raising committee director on one of Richardson’s political action committees while the bank says he helped it win state bond work, records show.

Both JP Morgan and UBS sold a portion of $1.1 billion of bonds for the New Mexico Finance Authority in April 2004, which helped to finance the state’s high-profile transportation program — GRIP, short for Governor Richardson’s Investment Partnership. CDR advised the finance authority on interest rate SWAPs related to the bond issue.

The investment at the heart of Foy’s complaint is unrelated to the GRIP bond issue, and CDR’s advice to the finance authority.

Concerted Pressure

The investment occurred in August 2006 after what he said was concerted pressure to do business with Vanderbilt. At the time, Foy was in the process of hiring outside money managers to take over investing about a third of the Education Retirement Board’s then-$8.5 billion public pension plan for New Mexico educators and school employees. Until then, he had invested that portion. It was then that he was told to speak to the bond salesman representing Vanderbilt, Foy said.

“The bottom line is the fix was in,” said Foy’s attorney, Victor Marshall. “It became apparent before the investment was made that certain people, including Gary Bland and Bruce Malott, were determined to make this investment with, of all people, Vanderbilt, whoever they are, among the hundreds of people who offer various products.”

Several months later, contributions from people associated with Vanderbilt Capital starting coming into Richardson’s presidential campaign. A total of $15,100 was given over a period from February 2007 to February 2008, records show.

“This happened a few months after the investment,”’ Marshall said. “That is not untypical. If there is a pay-to-play scheme sometimes it happens before. If the people are really stupid, they do it the same day, or right around the same time.”

After the investment, Vanderbilt paid out two dividends totaling $4 million, and then they stopped.

Ultimately the Vanderbilt investment resulted in nearly $90 million in losses — $50 million put in by the State Investment Council and $40 million from the ERB.

Foy is seeking about $300 million in damages to be paid to the state of New Mexico under a 2007 law that allows a citizen to recover three times the amount of money lost to fraud committed against taxpayers.

Foy’s complaint was unsealed Wednesday after the state Attorney General decided not to prosecute it, Marshall said. The complaint originally was filed in July.

A Troubled Fund

Foy’s complaint is not the first time the Education Retirement Board has been in the news.

In 2005, ERB was projecting a $2.4 billion shortfall and although it was able to pay benefits to its retirees, the future looked bleak. That year, a bill sponsored by State Rep. Lucky Varela lifted restrictions on ERB and other state funds (such as the State allowing them to invest in “alternatives” such as hedge funds, eliminating a “legal list” of allowable investments, and replacing it with guiding principles of the Uniform Prudent Investor Act (UPIA). It was one of several attempts that year to broaden investment possibilities for the state.

At the time, Foy was ERB’s chief investment officer.

Alternative investments are also at the heart of GRIPgate; CDR, the firm at the center of the probe, advised the New Mexico Finance Authority on interest rate SWAPS.

ERB was one of many pension funds recently affected by Bernard Madoff’s alleged Ponzi scheme. The fund could lose as much as $10 million on Madoff-related investments with Austin Capital Management, the AP reported in December.

NMI’s Heath Haussamen and Gwyneth Doland contributed to this report.

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